Are we getting an ISA season after all?

We're supposedly in the grips of ISA season, and while recent years have seen it fail to come to fruition, this year it looks as though there's an inkling of competition in the sector. After all, our latest research shows that not only have the number of cash ISAs available increased, but the average long-term ISA rate has risen for the fourth consecutive month, so we could be on course for a better season after all.

Rising rates (and availability)

The figures, taken from the latest Moneyfacts UK Savings Trends Treasury Report – due to be published later this week – shows that the number of ISA products has risen to 311, up from 296 last month and the first time the number of ISAs has stood above 300 since September 2016.

The long-term ISA rate has also risen and now stands at 1.03%, an increase of 0.02% from February. Although this is well below the average for this time last year, it's a welcome improvement on recent months – in November 2016 it dropped to a record low of 0.98%, but has edged up in every month since then to hit its current level.

The increase is also a sharp turnaround from the pattern seen a year ago: the average ISA rate for March 2016 may have been higher, but it fell sharply from the previous month, as the table below highlights. This shows that, although current rates are lower, competition has at least edged up, and means ISA season is already better than last year.

Signs of life

Charlotte Nelson, finance expert at Moneyfacts, explains that the large reduction in ISA rates in recent years has been due to the Funding for Lending Scheme (FLS), which came into effect four years ago and meant providers no longer had to compete for savers' cash. The Personal Savings Allowance coming into force last year only added to the issue, but now, the tide appears to be turning, raising hopes that more improvement could be on the cards.

"After the Personal Savings Allowance (PSA) was introduced in April last year, ISA rates took a severe tumble, [as] savers and providers were unsure as to whether ISAs were defunct," explained Charlotte. "However, the appetite for ISAs remains strong, driven by the awareness that if a saver does not use their ISA allowance, they will lose it.

"With this month's positive news, the ISA market is once again showing small signs of life, raising hopes that this year we may once again see providers compete for ISA business," said Charlotte. "With 26% of providers either increasing or launching fixed ISA products this month, the signs of an upturn are good."

It isn't all good news, however. Yet again, the main banks have failed to get in on the action, with much of the competition being confined to challengers. Then there's the fact that, despite all the positive news surrounding ISAs, rates on standard accounts continue to outshine them: the average long-term fixed rate (excluding ISAs) stands at 1.34% in March, a whopping 0.31% higher than its ISA counterpart.

"Savers are now faced with the hard choice of either losing their ISA allowance or settling for a much lower rate," said Charlotte, but it's hoped that the ISA allowance rising to £20,000 in April will make these accounts more appealing. After all, the PSA may mean that the first £1,000 in interest is tax-free, but what if you've already got a healthy savings pot?

If you're a seasoned investor, ISAs will still have a huge part to play in your portfolio, and the fact that you'll soon be able to keep even more away from the taxman's grasp will no doubt prove too good an opportunity to pass up. This means you'll want to be on the lookout for the best ISA rates possible, but as Charlotte points out, you'll need to be quick about it:

"If a small ISA season is on the horizon after all, it is likely to be a quick affair – savers may indeed blink and miss it. They'll therefore have to stay alert and act fast if they see a deal that attracts their attention."

What next?

Don't miss out! Stay on the ball by checking out our cash ISA Best Buys (or even our stocks & shares ISA chart if you're comfortable with extra risk), and get in on the ISA season action while you can.

Remember, too, that the new tax year starts on 6 April, so you haven't got long to get this year's investment sorted. If you don't use it, you lose it, so make sure to compare the options – and if you want to make the most of your allowance, it could be worth transferring your current ISA to get a better deal. Find out more about tranferring ISAs here.